InformationWeek

October 2, 2000

Special Report: Storage Service Providers
Outsourcing Options: A Hard Sell

Storage service providers let customers store and access data without the expense of buying and maintaining hardware and software. Why are users wary?

By Nick Wreden

More on SSPs:

Special Report: Storage

sidebar: More Than A Best Effort: Negotiating SLAs

Computer Reseller News: Investing In Storage (7/31/00)

InternetWeek: Storage Vendors Push Hosted Services (7/24/00)

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he IT department at TeVeo Inc. did its homework carefully in February when it assessed the company's current and future multiterabyte storage requirements. The group conducted a traffic and planning study that analyzed the startup's requirements for six upcoming quarters. It interviewed all major storage vendors after giving them full details on the application and other requirements, and it investigated staffing and salary requirements. Yet when staffers confidently reported their findings to management, they weren't prepared for what happened: The CFO literally fell out of his chair when he heard the costs of establishing an in-house storage infrastructure.

"The study resulted in several scenarios, with costs ranging from two to four times greater than our business model allowed," recalls Joyce Cooper, the company's principal software architect, who was in charge of the study. The costs ranged to as much as $300,000 in set-up fees, plus $50,000 to $250,000 in monthly fees, she says--a long way beyond what TeVeo's budget allowed.

Several months later, after reconsidering the costs and demands on its three-person IT staff, TeVeo--which lets individuals and businesses customers share streaming video and still images via the Internet--became a pioneer in a tiny but growing movement to outsource storage and management requirements to a new class of supplier called storage service providers.

SSPs sell storage as a pay-per-use utility, letting customers store and access their data without the expense of buying and maintaining storage hardware and software. SSPs are part of a broader category of outsourced E-services that also includes application service providers and management service providers.

Joyce Cooper Photo by David Weintraub Companies generally pay a monthly fee that averages about $50,000, depending on the amount of storage and levels of responsiveness and reliability that are defined in service-level agreements (see sidebar story, "More Than A Best Effort: Negotiating SLAs").

For example,TeVeo can access as much as 10 terabytes of storage through a file server connected to a storage area network in Intira Corp.'s Pleasanton, Calif., data center via an Internet-based virtual private network for about $50,000 a month. Intira also offers disk monitoring and other management services such as capacity planning. The data ranges from frequently accessed video clips and Web pages to database files that are constantly being searched.

Last year, according to Dataquest senior analyst Adam Couture, only one company, StorageNetworks Inc., was promoting the advantages of outsourced storage. Dataquest now tracks 12 SSPs, including Arsenal Digital Solutions, Centripetal, ManagedStorage International, Storability, and WorldStor. Established outsourcing vendors such as EDS are also edging into the market.

There are already signs of fragmentation, with vendors such as Zantaz.com specializing in archiving and others such as Compaq focusing on leasing on-premise storage systems to customers. Revenue for SSPs is derived from both storage and professional services, which can include storage system design and even business continuity planning. For example, StorageNetworks derives approximately 46% of its revenue from storage services and 54% from professional services.

These companies all want to stake a claim in a market that's "on fire," says Steve Duplessie, a senior analyst with the Enterprise Storage Group. He estimates the SSP market will grow to $11.2 billion by 2004, but it's still nascent. Only 13% of the companies surveyed by InformationWeek Research in a recent survey are using third-party service providers to host or manage storage systems, and just 19% plan to do so in the next 12 months (see chart, left). Those that are investing more in storage systems are more likely to be exploring service-provider solutions in the next year based on the survey of 385 IT professionals.

The arguments for SSPs echo those made for ASPs, especially because it's easier to outsource storage than applications. The first reason is the escalating overall demand for storage, propelled by rising volumes of E-mail, storage-intensive video, and other applications. According to Dataquest, storage requirements are expected to double every year and will exceed 600,000 terabytes in 2003.

At the same time, the infrastructure and skills required to store and manage such large volumes are also growing increasingly complex. This problem is exacerbated by a lack of IT talent, especially those skilled in storage nuances such as data flow control. "One terabyte may be twice as much storage as 500 gigabytes, but it's geometrically more difficult to manage," TeVeo's Cooper says. The costs of managing a terabyte of data are universal regardless of a company's size or resources.

Such difficulties are thwarting traditional storage budgets. Some analysts say that while chips are getting cheaper and denser, the visible and hidden costs of storage management represent as much as half of all IT costs. Others peg installation and support costs at 10 times the cost of the storage equipment itself. Duplessie also estimates that 70% of large companies are only selectively backing up data because they don't have the RAID storage or other resources for full backups.

The prospect of trading escalating storage requirements and unknown costs for a fixed monthly fee, ranging from $20,000 to $100,000, is appealing to some executives already willing to outsource operations that can't be directly linked to revenue generation.

Peter Bell, CEO of StorageNetworks, says SSPs let companies gain a dedicated fiber link to their storage complete with advanced online storage-management tools and the ability to quickly add additional storage for permanent or temporary requirements, such as inventory buildups before Christmas. Meanwhile, the SSP handles all issues concerning hardware interoperability, upgrades, and staffing, incorporating the latest technologies such as Fibre Channel switches and serverless backup. "We're enabling a fundamental shift in corporate computing, from the glass-house model to the service-based provider model," Bell says.

Purchase the research

Which enterprise storage vendors offer the best overall product value? And which storage providers are deemed the most reliable? Increasingly, outsourcers are being called in to advance networked storage capability. But are service expectations being met? Find out by ordering, "Analyzing The Storage Vendors."

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Photo by David Weintraub

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